Semiconductor Company
Marlene Alexandra Antunes Barbosa
Dissertação de Mestrado
Orientador na FEUP: Profª. Drª. Lia Patrício
Orientador na Infineon Technologies AG: Engº. Werner Köle
Faculda de de E ngenharia da Universidade do Porto
Understanding the Strategic Value of Services – a Case Study in a Semiconductor Company
Abstract
Servitization has been recognized as one strategic choice for many manufacturing firms to obtain differentiation from competitors in today’s highly competitive markets by offering value-added services. Servitization can be defined as “a change process wherein manufacturing companies embrace service orientation and/or develop more and better services, with the aim to satisfy customer’s needs, achieve competitive advantages and enhance firm performance” (Ren and Gregory, 2007).
The purpose of this study is to understand the potential that the semiconductor company Infineon Technologies AG has to develop a servitization strategy and to recognize the drivers that could lead the organization to follow that strategy and the barriers that could prevent the development and implementation of a servitization strategy.
A multiple case research design on the semiconductor company is used as the research methodology. This study answers the following strategic questions: How can the organization potential to develop a servitization strategy be characterized?; Why should the organization consider developing a servitization strategy?; Why could the organization be prevented to develop a servitization strategy?
The findings show that the organization that there is potencial for the organization to develop a servitization strategy. Some drivers to have the organization considering such strategy were identified, as the services mean to compensate the decrease of product profit margins, to have a better differentiation and competitive advantage or to help to sell more products. However, in order to develop and implement an servitization strategy, the organization should overcome a set of challenges related with the organization culture and structure, the services design, development and delivery process, the internal and external communication of the services value, the pricing strategy and with the sales of services.
Keywords: Servitization, service strategy, customer value, pricing of services, sales of
Acknowledgments
Writing this master thesis would not have been possible without the valuable support of all those who directly or indirectly contributed for it. For their involvement, my sincere gratitude. Firstly, I would like to thank my supervisor at Faculty of Engineering of Oporto University at Portugal, Prof. Dr. Lia Patrício, for all the trust, advice and guidance provided throughout all the research period.
In addition, I would like to thank Werner Köle for allowing me to do this research at Infineon Technologies as well as for the advices and support given.
I would also like to express my gratefulness to everyone in Infineon Technologies who participated in this study, contributing with essential information and data.
A special thanks to my family for all the support, patience and incentive, especially to my sister Andreia for all the encouragement, for the daily support and fruitful discussions.
List of Abbreviations AE – Application Engineer CSI – Case Study I
CSII – Case Study II
FAE – Field Application Engineer FSE – Field Sales Engineer
Infineon – Infineon Technologies AG PSS – Product Service System
Table of Contents
1 Introduction...1
1.1 Company Presentation... 1
1.2 Scope and Objectives ... 2
1.3 Methodology... 2 1.4 Dissertation Structure... 3 2 Literature Review ...4 2.1 Servitization in Manufacturing ... 4 2.1.1 Concept of Servitization ... 4 2.1.2 Value in Services ... 6
2.1.3 Classification of Product Services ... 7
2.1.4 Drivers of Servitization ... 9
2.1.5 Challenges of Servitization... 11
2.1.6 Pricing of Services ... 14
3 Research Methodology ...16
3.1 Research Problem and Questions ... 16
3.2 Research Methodology ... 16
3.2.1 Multiple Case Study ... 17
3.2.2 Selection of Cases ... 18
3.2.3 Data Collection... 19
3.2.4 Data Analysis ... 21
4 Results and Discussion ...23
4.1 Unstructured Interviews... 23
4.2 Case Study I - PSS with an Explicit Service Component ... 24
4.3 Case Study II - PSS with an Inexplicit Service Component... 34
4.4 Cross-Case Discussion ... 44
4.5 Main Findings... 54
5 Conclusions, Limitations and Implications for Future Research ...57
References ...59
APPENDIX A: Semi-Structured Interviews Guide ...64
APPENDIX B: Categorization of Unstructured Interviews...69
APPENDIX C: Categorization of Semi-Structured Interviews (CSI) ...70
APPENDIX D: Categorization of Semi-Structured Interviews (CSII) ...74
APPENDIX E: Services Categories (CSI) ...78
List of Figures
Figure 1 - The product service continuum (Oliva and Kallenberg, 2003) ...5
List of Tables Table 1 - Definition of servitization (adapted from Baines et al., 2009)...4
Table 2 - Unstructured Interviews: Interviewees List ...19
Table 3 - Semi-Structured Interviews: Interviewees List ...20
Table 4 - Similarities and Differences: Products and Services ...45
Table 5 - Similarities and Differences: Competition and Differentiation ...46
Table 6 - Similarities and Differences: Organization Culture...46
Table 7 - Similarities and Differences: Organizational Configuration...47
Table 8 - Similarities and Differences: Design, Development and Delivery ...49
Table 9 - Similarities and Differences: Value Proposition...50
Table 10 - Similarities and Differences: Customer Satisfaction ...51
Table 11 - Similarities and Differences: Pricing Strategy...52
Table 12 - Similarities and Differences: Economic Earnings ...52
Table 13 - Similarities and Differences: Sales of Services ...54
Table 14 - Categorization of Unstructured Interviews ...69
Table 15 - Categorization of Semi-Structured Interviews (CSI)...70
Table 16 - Categorization of Semi-Structured Interviews (CSII)...74
Table 17 - Services Categories (CSI) ...78
1 Introduction
In a challenging world of global competition, traditional manufacturing firms are being forced to pursue and develop new and innovative ways to compete and to adapt to the new constrains and demands in the markets. One strategy is to create value through the addition of services into their products. This phenomenon is defined as servitization.
With a dissertation, it is expected a new discover or a new consideration of an old subject: a real contribution for the progress of science (Salvador, 1978). Taking this in consideration, the focus of this dissertation is a case study at Infineon Technologies AG (Infineon) to understand, with a real example, how services can be relevant in manufacturing, focusing on the strategic value that these can bring to a manufacturer.
This chapter provides a presentation of the company where the research took place, the research scope and objectives, a summary of the methodology used and an overview on structure of the dissertation.
1.1 Company Presentation
Infineon Technologies AG is a German firm founded in 1999 as a spin-off from Siemens AG. With a global presence (Europe, America, Asia), it has 34.000 employees worldwide as per January 2015. Acting in the semiconductors industry, Infineon offers semiconductors and systems for automotive, industrial, power management and multimarket sectors as well as for chip card and security products. The main focus areas of Infineon are:
Energy efficiency – Optimal electricity use is achieved by harnessing smart semiconductor technology: innovative chip solutions fine-tune cars, industrial plants, consumer and household electronics to use less energy;
Mobility - Sensors, microcontrollers and power semiconductors are used in the automotive body and convenience systems, safety and drive systems and raise the energy efficiency. Infineon Technologies innovative semiconductor solutions are instrumental in significantly reducing fuel consumption and CO2 emissions, enhancing automotive safety and in making cars affordable for all, including emerging nations;
Security – Infineon semiconductor security technologies protect digital information from misuse. It resolves the incompatibility of communication requirements and privacy. By combining hardware security and encryption technology, Infineon’s chip solutions form the basis for data protection and data security while upholding the freedom of the individual and supporting modern, convenient communication media.
Infineon strives to be the semiconductor innovation leader for energy efficiency, mobility and security. Their solutions help society to grow while preserving the environment, reflecting the company responsible and radical reaction to worldwide changes like globalization, climate shift and population increase. The company way to success is marked by the financial strength, on having unique competitive advantages (create customer value through technical expertise, application and system understanding, innovation power and trusting relationships) and to focus on a high performance (ambitious goals and a clear focus on results,
entrepreneurial decision-making and lean and fast execution). In addition, the company guides itself by four core values:
“We commit” – to satisfy the customers’ needs, walk the extra mile for its commitments and offer the best price-performance value;
“We innovate” – to learn and get better every day, discover and develop new opportunities and excel in outstanding engineering;
“We partner” – to openly cooperate across boundaries, respect and help each other and team up for the best results;
“We perform” – to embrace constructive conflict, to be accountable for its results and actively capture its profit potential.
1.2 Scope and Objectives
This project was developed as part of the dissertation project of the Master in Services Engineering and Management of Faculty of Engineering of Oporto University at Portugal. It was conducted at Infineon Technologies AG in Munich, Germany within the Business Innovation Office. This department exists to provide consulting to improve the existing business or to generate new business ideas and also to build up the employees’ knowledge in general business innovation methodologies.
In response to competitive and economic pressures, a growing number of manufacturing organizations are adding services to their traditional product offerings. The central subject of this dissertation is servitization in manufacturing firms and the objectives of this study consist in understanding the potential that Infineon has to develop a servitization strategy and to recognize the drivers that could lead the organization to follow that strategy and the barriers that could prevent the development and implementation of a servitization strategy.
Complex markets and customers, lower profit margins and higher competitive intensity are stressing the strategic importance of services (Oliva & Kallenberg 2003; Kowalkowski, 2010), leading the traditional product manufacturers to alter the way they view services (Gebauer et al. 2005; Gebauer 2008). For Infineon, this study could be an opportunity to develop a new perspective on services within its business industry, focusing on how these could be a mean to differentiate itself from the competition, to increase profit, customer satisfaction, loyalty and relationships.
1.3 Methodology
This study employs a multiple case study research. Yin (2014) defines case study as “an empirical inquiry that investigates a contemporary phenomenon (the “case”) in depth and within its real-world, especially when the boundaries between phenomenon and context may not be clearly evident”. The evidence of a multiple case study is frequently considered more captivating and the study is overall stronger than a single case study (Yin, 2014). The decision for multiple cases was based on that principle and on the results of the data collection, being suitable to allow the verification of consistency of similar results. Within the case study research, it was decided to use a qualitative approach. It was considered the most suitable technique as it studies phenomena in the environments in which they naturally occurs.
Qualitative research addresses questions about how social experience is shaped and given meaning and produces representations of the world that make it visible (Gephart, 2004). The data collection started with a multi-disciplinary review across the fields of servitization, service infusion, product-service systems and industrial services was done, aiming to increase the knowledge on this subject. Through an intensive reading phase, the most relevant information and that could bring value to the study was acknowledged. In order to obtain a general overview of products and services delivered by Infineon and to recognize all topics and main problems relevant for this study, a set of unstructured interviews was done. From these interviews, two case studies were identified and taken for this study: one product service solution (PSS) with an explicit service component and one PSS with an inexplicit service component. Semi-structured interviews were used as the main source of data for the cases. According to Yin (2014), interview is one of the most relevant sources of evidence for a case study. In addition to the semi-structured interviews, it was possible to access some documentation related with the two PSS. Yin (2014) states that “documentary information is likely to be relevant for every case study topic”. The unstructured interviews were not recorded and the notes taken were grouped in major themes that consider the objectives defined for this study. The semi-structured interviews were recorded except one (there was not consent for recording) and then transcribed. The data was as well organized in themes and subthemes to facilitate the data analysis. Due the existence of multiple cases, cross-case synthesis logic was used in the data analysis process, by observing and comparing similarities and differences between each case, being complemented with the data from the unstructured interviews.
1.4 Dissertation Structure
To enlighten the reader how this document is built, a brief description of its structure is provided.
This study has been categorized into five main chapters. The first chapter presents an introduction and context to this research, identifying its scope, objectives and the methodology chosen to provide an answer to the research questions. It is on this chapter that the dissertation structure is presented as well. On the second chapter, the theoretical framework is presented, focusing on the relevant subjects for this dissertation. This literature review gives an overview of servitization theory, value in services, on the classification of services and the drivers and challenges of servitization. It is also provided a theoretical background about the pricing of services. The third chapter provides an insight on the questions driving the investigation and introduces and discusses the methodology used on this study, presenting the methods that were generally applied within this investigation. It aims to describe how, why and in what way the research was carried out. On the fourth chapter, the empirical findings and results from the case study research performed at Infineon are presented. The information and data gathered is analyzed and discussed in the same chapter, providing a comprehensive linking between the findings and the literature study. The fifth
and last chapter presents the conclusions of the work done and the limitations of the
research. Furthermore, recommendations for future research are discussed in this chapter as well.
2 Literature Review
This chapter includes the analysis of the relevant literature in the area of servitization and related concepts such as service infusion, industrial services and product–service systems, considered to be a good theoretic basis for this work. It starts with a general concept of servitization, going through the value in servitization and the classification of services. The drivers and challenges of a servitization approach are identified and described so as the pricing strategy for services.
2.1 Servitization in Manufacturing
2.1.1 Concept of Servitization
Traditionally, manufacturing firms have focused on strategies related with products, trying to achieve a technological innovation, improve the quality of the products and to reduce costs. The increase of the competition, the globalization of markets and the shifts in customers’ demands, have made difficult for manufacturers to trust on this kind of strategy (Lay et al., 2010, Wise and Baumgartner, 1999). As a way to overcome these challenges, a significant trend in manufacturing industry has been observed in the past years, where the firms are shifting their business from not purely producing goods but to provide an offer of integrated package of goods and services. This shift on business has been called as servitization firstly in 1988 by S. Vandemerwe and J. Rada. They have defined servitization as “the increased offering of fuller market packages or “bundles” of customer focused combinations of goods, services, support, self-service and knowledge in order to add value to core product offerings”. Since then, this concept has been studied by several authors who have focused on developing the process of servitization as a competitive business strategy of manufacturing firms so as its consequences in the product saturated markets. Baines et al. (2009) have gathered some of the different definitions of servitization from some of the relevant authors as follows in Table 1:
Table 1 - Definition of servitization (adapted from Baines et al., 2009)
Author Definition of servitization
Vandermerwe and Rada (1988)
“Market packages or ‘bundles’ of customer-focused combinations of goods, services, support, self-service and knowledge”
Desmet et al. (2003) “A trend in which manufacturing firms adopt more and
more service components in their offerings”
Verstrepen and van Den Berg (1999) “Adding extra service components to core products”
Lewis et al. (2004) “Any strategy that seeks to change the way in which a
product functionality is delivered to its markets”
Ward and Graves (2005) “Increasing the range of services offered by a
manufacturer”
Ren and Gregory (2007)
“A change process wherein manufacturing companies embrace service orientation and/or develop more and better services, with the aim to satisfy customer’s needs, achieve competitive advantages and enhance firm performance”
It is clear that the terms service and product are inherently linked to the definition of servitization and, to have a brief definition of the two terms is considered appropriate for a servitization related study. In manufacturing, a product is understood as a material artefact or as “a tangible commodity manufactured to be sold and fulfil a customer’s need” (Goedkoop et al., 1999) and a service can be translated as “the application of specialized competences (knowledge and skills) through deeds, processes, and performances for the benefit of another entity or the entity itself.” (Vargo and Lusch, 2004).
The definition of servitization or the terms used may change but its essence lies on the transition process of including services to create value into a goods-based offering and the relationship between the manufacturer and the customer is a key factor. The phenomenon is also seen as a move downstream in the value chain, towards the customer, and consequently achieving additional revenue from operations (Wise and Baumgartner, 1999).
Furthermore, the literature recognizes positioning along a product-service continuum that goes from the offering of traditional services (add-ons to manufacturers’ products) to the provision of the services that become the main part of value creation process (Baines et al. 2010). To Oliva and Kallenberg (2003), the transition to a servitization approach assumes that firms reposition along a product-service continuum, where it moves from basic product oriented services towards a more customized process oriented services. At the initial point of the continuum, it is assumed that a manufacturing firm produces core products and services are considered as an add-on to the product. On the opposite side of the continuum, firms provide services and their products are only an add-on to the services. As a result of this assumption, the importance of services increase and the customer relationships become long-term and closer (shift of the nature of customer interaction from transaction-based to relationship-based) as further the manufacturing firms move along the product service continuum. However, manufacturing firms need to consider the individual opportunities and challenges of the different levels of service infusion to decide the appropriate positioning (Gebauer et al., 2008a). The product service continuum from Oliva and Kallenberg (2003) is presented on Figure 1 as follows:
Figure 1 - The product service continuum (Oliva and Kallenberg, 2003)
Additionally, concepts like service infusion, integrated solutions, product–service systems, industrial services have emerged, aiming to describe the rising importance of services in the manufacturing industries. Despite these have developed from differing perspectives in the
world, they reach to a common assumption that manufacturers should focus on offering integrated solutions of goods and services (Baines et al., 2009).
The principal of servitization is not just the service addition but rather a service orientation in which manufacturing companies are not only expanding their product offering with services but as well developing new offerings where products are no longer at the center of the company’s value proposition or even of its business model (Kindstrom, 2010). In general, servitization can be understood as the focus on the shift from selling products to selling integrated solutions (by adding services) that will deliver value in use. Manufacturing firms should be able to comprehend how customers will use their integrated solutions in a way that will increase the value proposition offered.
2.1.2 Value in Services
From the perspective of servitization, value co-creation has shift the traditional idea of value creation (where producing goods that can be sold as the exclusive purpose of economic activity, the productivity and profitability are the value drivers for the organization and customer value is imbedded into the goods and services by the company) to a new value paradigm where customers actively co-create value with the organizations (Vargo and Lusch, 2004). Customer value has been used in different contexts to indicate the customer evaluation of utility, worth, benefits and, in some scale, the monetary gains (Yu-Lee and Haun, 2006). Recently, the customer value definition has raised two significant distinctions:
Value-in-use: it suggests that the customer plays a role as creator of value while using the product or service. This idea consists with a service dominant logic, where the value is not determined at the manufacturer or embedded on the goods but that is defined by the customer through the usage of the product or service to accomplish its business goals. In this value-in-use concept, the manufacturer creates merely the value proposition and customer apprehends that value in its specific processes and business context (Vargo and Lusch, 2008);
Value-in-exchange: in this concept, customer value is considered to be determined by the manufacturer through its products which are switched for money or equivalent (Grönroos, 2008). It is also associated with a goods dominant logic.
Grönroos (2008) states that “applying the terms value-in-use and value-in-exchange, the former is more important than the latter. If customers cannot make use of a good, value-in-exchange is nil for them. Since they have paid good money for nothing, it is actually negative. Only during consumption, realized value in the form of value-in-use is created.”. He adds also that “customers are not primarily interested in what they buy and consume, but in what they can do with what they have in their possession. They use resources in self-service processes in order to “get something out of it”. In other words, they use resources to get something of value for themselves.”.
The recent literature shows as well that the value of something is determined by the user and not by the manufacturer. Being able to provide value is the essence of making profitable any product or service and, when selling services, it is important to understand what customers consider valuable (Neely, 2008). If the organizations don’t have the ability to create value for customers, these will not be willing to pay for it. It can then be determined that “a value proposition creates value for a customer segment through a distinct mix of elements catering to that segment’s needs.” (Osterwalder & Pigneur, 2010).
Multiple stakeholders within an organization perceive value resulting from a manufacturer offering in different levels. At the corporate value, value-in-use is evaluated by decision makers while users have the tendency to have their own appraisal of value-in-use (Macdonald et al., 2011). Usually, customer has different stakeholders in the negotiations and each one expresses its own sense of value. However, value-in-use at both user and decision maker level contribute heavily to the customer organization’s comprehensive view of value and it is suggested that a value proposition that emphasizes value-in-use is better positioned to consider the needs of various value evaluators than value-in-exchange (Kowalkowski, 2011). Moreover, upper-level functional managers are more likely to seek and sign up for services than entry-level managers. When services and solutions address strategic problems with long-term implications for a company, the decision to hire advisors would necessarily involve the highest levels of top management (Zeithaml et al., 2014).
The construction of an effective and successful value proposition is extremely dependent on a profound understanding of the customers’ needs and business. It is not enough to just ask customers what they want and what their needs are. A proper value proposition should as well facilitate the customers understanding on the possible benefits that services can deliver, especially when the organization charges a fee for them. Showing the actual numbers or statistics of what the offer is capable of is one possibility to simplify the comparison of benefits and price, and can be used too as a selling argument for the salespeople on the supplier side (Edvardsson et al,. 2005; Gebauer et al., 2005; Grönroos, 2008; Neely, 2008; Neu and Brown, 2005). On the whole, by understanding value-in-use, manufacturers will be able to develop appropriate value propositions for their servitization strategies. Value from a service perspective is no longer based on the exchange value determined by manufacturing companies but on the value-in-use defined by the customer according to the perceived benefits of the services (Vargo and Lusch, 2008).
2.1.3 Classification of Product Services
The services traditionally offered by manufacturing firms are seen as an add-on to their products, like the after-sales services (e.g. installation, maintenance, warranties, etc.) but, throughout the years, the scope and flexibility of manufacturing services have been increasing and some definitions exist to show the balance between products and services, illustrating the different levels of servitization.
Kotler (1997) distinguishes the industrial services in two categories: maintenance and repair
services and business advisory services, which can be perceived as services that facilitate the
use of the supplier product.
Frambach et al. (1997) proposes that product services can be categorized according to the type of relationship between customer and provider: transaction related service or relationship
related service, related with services supporting the supplier's product.
For Mathieu (2001a), the services provided by manufacturing firms can be classified in two types:
a) Services that support the supplier’s product – goes in the direction of the traditional view of a service offer and the main goal of such service is to guarantee the correct functioning of the product and/or to facilitate the customers’ access to the product. The direct recipient of the service is a product, the intensity of the relationship is low (people and
departments involved and the importance of commitment and trust between parties), the service is standardized and the predominant variables are the physical evidence and the process;
b) Services that support the client’s action in relation to the supplier’s product – it’s a more advanced perspective of the product services offering where the manufacturing firms explores how their services support specific customer initiatives and how these will support the customer core activities (maximize all the different processes, actions and strategies that are related with the supplier’s product). The direct recipient of the service is the customer, the intensity of the relationship is high, the service is highly customized and the predominant variables are the people (supplier and customer personnel).
Mathieu (2001b) goes further and states that there can be an additional component on the services that support the client’s action: services as a product. The services offered by the manufacturing firm might not be related to any of their products. As companies become more customer and service solutions focus, it is a natural extension to also support other companies’ products.
Zeithaml et al. (2014) adopt a very similar classification as Mathieu: services that support the product (the customer expects these services to go hand in hand with the product), services that support the customer (services that are higher level and have higher value, focusing on the customer) and services that supports other companies’ products.
One more example is the classification proposed by Tukker (2004) of three main categories of product services:
a) Product-oriented services: the main goal is still the sales of products but some extra services are offered. Along with the product, the firm provides services that are required through the use phase of the product (product-related service) and gives advice on its most efficient use (advice and consultancy services). Examples of such product-oriented services can be a maintenance contract, a financing scheme or the advice on the organizational structure of the team that will use the product;
b) Use-oriented services: in general, the product is not owned by the customer and this pays for the use or availability of the product. There are three types of use-oriented services: product lease (the provider has ownership of the product and is responsible for maintenance, repair and control, while the lessee pays a fee to use the product), product renting or sharing (has the same characteristics as product lease plus the fact that the user does not have unlimited and individual access to the product) and product pooling (quite similar to product renting or sharing but here there is a simultaneous use of the product);
c) Result-oriented services: the customer and the provider agree on a result and there is no pre-determined product involved (a result or capability is sold instead of a product). Here, Tukker (2004) also distinguishes three types of result-oriented services: activity management/outsourcing (a part of an activity is outsourced to a third party), pay per service unit (the user does not buy the product but only the output according to the level of use), functional result (the provider and the customer agree in the delivery of a result).
Neely (2008) introduces two additional categories to Tukker’s framework, naming them as: a) Integration oriented PSS: related with the downstream movement by adding services through vertical integration. Same as the product-oriented services category, product
ownership is transferred to the customer and the provider aims for vertical integration (e.g. by moving into financial or consulting services);
b) Service oriented PSS: the services are incorporated into the product itself. However, the product ownership is transferred to the customer and merely additional value added services are provided as an essential part of the offering.
The developing categories of services illustrate the extent of alternatives available to manufacturing firms to harness real value in their service business.
2.1.4 Drivers of Servitization
From the literature, there is a threefold logic why product firms should seek for a servitization strategy: financial, strategic and marketing (Mathieu, 2001b; Oliva and Kallenberg, 2003; Gebauer and Friedli, 2005; Gebauer et al., 2006, Gabauer and Fleisch, 2007). More recently, environmental sustainability aspects have been highlighted as additional drivers of servitization (Mont, 2002; Baines et al., 2007).
The financial drivers outline that services are expected to bring additional economic benefits to manufacturing firms because usually services serve as a mean to sell more products. They have as well higher margins than products and provide a more stable source of revenues as services are more resilient to the economic cycles (Oliva and Kallenberg, 2003; Gebauer et al., 2006; Gebauer et al., 2008b). Brax (2005) and Brax and Jonsson (2009) recognize also that services can be a possibility to balance the effects of the economic cycles because their demand is frequently counter-cyclical as compared to products sales cycles. If services can offer higher margins than products, leading to a higher share of total revenue with services, the overall profitability of the manufacturing firms will increase (Gebauer and Fleisch, 2007). Firms that have adopted a servitization strategy have a tendency to keep the revenue stream and to increase the profitability especially in sectors where the product involves a hard installation procedure (Baines et al., 2009). Nevertheless, financial benefits are accessible merely if the manufacturers are able to setup a pricing strategy that can cover the costs of delivering the services (Mathieu, 2001b).
Despite the benefits mentioned, Gebauer et al. (2005) introduces the concept of service paradox: manufacturing firms might strongly invest in their service business in order to increase the service offering without obtaining the expected increase in revenues. Many managers fail to perceive the financial benefits of services. Changing from the existing product oriented cost monitoring system to a system where actual service and product costs are transparent to have a comprehensive understanding of the service market and to adapt the organizational structure and processes are some of the recommendations to overcome the service paradox and to implement a successful service approach (Gebauer and Fleisch, 2007). The success factors for achieving high service revenues in manufacturing companies have been studied by Gebauer et al. (2006) and are presented as follows: develop market-oriented services and to have a clearly defined service-development process as this will be essential to understand the customer needs; the service offerings should start with product-related services (ensure the proper functioning of the supplier’s product) and be extended to services directly supporting the customer; relationship marketing can assist in convincing more customers to purchase more services because it positively affects customer expectations by set up a high
company reputation; establish a clear service strategy that focuses on promoting and creating new services; to have decentralized service organizations with profit and loss responsibility; establish a service culture.
The strategic drivers concern with gaining competitive advantages (Baines et al., 2009). The difficulty to differentiate the product offering has been increasing for manufacturing firms and the differentiating strategies based on product innovation, technological superiority and low prices are becoming even more difficult to maintain (Baines et al., 2009). As products can be physically comparable, adding services to them might be the only way to achieve differentiation. Customers in industrial markets have been demanding turnkey solutions to problems instead of products that partially solve their needs and services can enhance the value of the product to its users (Frambach et al., 1997). Gebauer et al. (2009) adds that remaining profit margins is an issue for manufacturers, forcing them to discover new differentiation opportunities, and moving towards services becomes a smart way to achieve competitive advantages and to sustain overall profitability.
To include services in the manufacturing firms offering is advantageous especially in matured markets allowing the company to grow and to gain new competitive opportunities. Besides being a mean to respond to customer demands, services can be considered also as a way to differentiate the manufacturing firms’ offering from their competitors, hence retaining old customers and obtaining new ones. (Mathieu, 2001b; Brax, 2005; Gebauer et al., 2008b; Brax and Jonsson, 2009). Services are more difficult to imitate as they are less visible and more labor dependent, thus becoming a sustainable source of competitive advantage (Oliva and Kallenberg, 2003).
Marketing opportunities can be understood as the use of services for selling more products
(Gebauer et al., 2006; Gebauer and Fleisch, 2007). The service component is known to influence the purchasing decision (Baines et al., 2009) and industrial customers are demanding more services, creating a pressure to build more flexible firms, to narrow definitions of core competencies and to increase technological complexity, making manufacturing firms to raise the outsourced services (Oliva and Kallenberg, 2003).
The expansion towards services is viewed as a necessity to generate and manage long-lasting relationships in business-to-business markets (Mathieu, 2001b). As services are frequently offered as long-term contracts, opportunities to strength the relationship with customers, to increase customer loyalty and to obtain knowledge about the customer, can be provided to manufacturing firms (Gebauer at al., 2008b). By offering different product services throughout the several stages of the relationship lifecycle, the manufacturer can adapt to the customer needs. This may lead to a more intensive relationship between the two parts and thus leading to more transactions over time. This relationship becomes less institutionalized and manufacturer is able to customize homogeneous physical products and to develop more tailored solutions (Frambach et al., 1997).
A recent trend of environmental sustainability concern has also been considered to have an impact on servitization. The expectation is that a pure product service will have a lower environmental impact than a traditional transaction where a manufacturing produces its goods but then transfers the responsibilities of ownership and use to the customer (Baines et al., 2007). With a product service system approach, there is the potential to decrease the number of products by introducing alternative scenarios of product use (e.g. sharing, renting).
Manufacturers are advised to take back their products, upgrade or renovate and use them again and, in the end, less waste is incinerated or landfilled (Mont, 2002).
2.1.5 Challenges of Servitization
Despite servitization being a good approach for a manufacturing firm to increase profitability, to gain stability, to grow and to achieve customer intimacy, it does not come without challenges. These can be generally categorized as integrated product service design, organizational strategy and organizational transformation (Wise and Baumgartner, 1999; Oliva and Kallenberg, 2003; Brax, 2005; Slack, 2005; Baines et al., 2009).
The design of services is significantly different of the design of products because services are fuzzy and difficult to define. This influence the way services are perceived by customers, how service quality is defined and how service innovation is managed (Slack, 2005). This may also discourage manufacturing firms from expanding the service dimension because as these companies move towards services and solutions, the market environment changes. New and unexpected competitors, such as own suppliers, distributors or customers, need to be considered in the service strategy so that the offering provides more value to the customers and to secure the firm’s competitive position (Mathieu, 2001b; Oliva and Kallenberg, 2003; Baines et al., 2009).
Gebauer et al. (2006) define service strategy as a company’s means to differentiate itself from the competitors with the service offering and an appropriate service strategy depends on the competitive intensity of the markets, the business environment conditions, the complexity of customer needs and the value chain position on the manufacturing firm (Gebauer et at., 2010a). Constructing a service strategy denotes a downstream transition in the value chain, in the direction of customers and increasing the attention given to the end user to enhance the knowledge about it (Vandemerwe and Rada, 1988).
One of the main challenges when developing a service strategy is related with the necessary internal changes on the organization. The implementation of such strategy implies an operation through the organization, with the main goal of increase the service oriented aspects. According to Gebauer et al. (2010c) it is required to create an ability to deliver services, to train personnel to become service oriented and to cultivate, in some extent, a new organizational culture to comply with the new strategy. A service strategy is not static and has to be adapted to fit the changes in the competitive environment. The first challenge that manufacturing firms should overcome in the transition process is to develop a service strategy, which requires the investigation of the existing organization culture, human resource management, organizational structure and service development operations (Gebauer et al., 2010a).
Setting up a service oriented organizational culture entails the entire company to re-focus its attention (Brax, 2005). Managing the transition phase in manufacturing firms can be challenging as a traditional product oriented culture differs significantly from a service oriented culture. A manufacturing firm, whose strategy centers on products, has led to a human resource management and organizational culture to become focused on products and should apply a change in the strategic perspective so as to acquire new skills and people in order to enter the business effectively. These changes request new ways to measure the firm and employees’ performance, as well as new inducements and rewards to encourage
employees to take on a service-oriented approach of doing things (Wise and Baumgartner, 1999). The servitization entails a shift in employees’ mindset and this change should be encouraged by managers, requiring a solid internal marketing based on a enhanced understanding of customer benefits from services (Gebauer et al., 2005).
Another challenge in the transition to servitization is related with the organization
configuration, meaning the structure of roles, responsibilities, decision rights, resources and
rewards that is conductive to developing and delivering services and solutions. The degree to which management in manufacturing companies anticipates the returns from service business depends on their capability to design a configuration of organizational elements that suits the external business environment (Neu and Brown, 2008). One critical success factor suggested by the literature for the transition to services is the creation of a separate services and solutions organization with a dedicated sales force, information system, metrics, control system and profit and loss status. Gebauer et al. (2010d) state that “separating services from the product business means that form create a distinct strategic business unit (SBU) for services that fully control the targeting of customers and the development, pricing, selling, and delivery of service offerings. As a distinctive SBU, the service organization takes over the financial responsibilities for profit-an-loss in the service business.”. The reason pointed is that traditional manufacturers are not able to understand how to provide services and frequently consider them as add-ons. Furthermore, the revenues and profits of developing services are small compared with the financial rewards of products and manufacturing companies must learn to value, sell, deliver and invoice services (Zeithaml et al., 2014). There are, on the other hand, few researchers that support integrating the service operations in manufacturing firms but, if a business unit wants to servitize its operations, it has to have a customer centric configuration in order to allow the implementation of the service strategy and support the service oriented cultured (Brax, 2005). Concerning the decision making, Neu and Brown (2005) consider that vertically decentralized decision making is a suitable mean for an organization to become more customer and service oriented because managers at lower levels are closed to customers and might be able to recognize better their service needs and to better understand how to align operations with identified needs.
For a manufacturing company that has been product oriented and focused on technology and internal processes, to develop market oriented services can be a challenge in the transition to offering services. Martin and Horne (1992) suggest that new service development is seen as an obstacle for firms because the development process is frequently unstructured and it goes behind the product development as organizations consider service innovation as something that “just happens”. In order to be successful in developing new services, a company should have a structured, formal and customer oriented service development process, consisting in the identification of the market needs, the conceptualization and setup of the idea and carry out its introduction into the market. If a new service development process is implemented effectively, it can be a way to differentiate the service offering when introducing into the market (Gebauer et al., 2006; Gebauer et al., 2010b). Having the knowledge on the customer business context and operational conditions is important as services are designed to support the customers’ business goals (Brax, 2005). The organizations should take customer input into the new service development process and treat customers as partners and design services together with them. The benefits of such involvement are more new services and solutions that better suit customer needs, create higher satisfaction and reinforce customer loyalty and company profitability (Zeithaml et al., 2014).
The internal and external communication is a significant point to take in consideration in the transition to services but to have the most appropriate approach is usually a challenge for traditional manufacturing firms. In order to have employees to commit to the goals defined, they need to realize the benefits of services and, to change the employees’ mindset towards a service oriented culture, a strong internal marketing strategy is required (Gebauer et al, 2006). On the other hand, through external communication, manufacturing firms intend to alter customer perceptions, from selling high quality goods to providing exceptional services and fulfilling customer needs and requests (Gebauer et al., 2006). Communication is critical to diffuse to customers the benefits of the service offer (Mathieu, 2001).
One last challenge to be mentioned is related to an organization finding the proper
capabilities of employees who deal directly with customers, as the salespeople, service
technicians and delivery personnel. According to Zeithaml et al. (2014), as a firm shifts to services, many traditional salespeople will be unsuccessful in selling services and solutions because explaining services is different from explaining the physical attributes of a product. The sales process is usually more complex and strategic. The sales process has experienced a major change, going from a focus on transactions to a framework of interaction and building a relationship between seller and buyer. Sheth and Sharma (2008) state the transformation in the sales process from salespeople being valued based on their capability to sell goods and services by influence the customer through charisma and assertiveness, to a customer oriented selling that entails qualities as problem solving skills, satisfying customer needs and delivering customer service.
The change towards selling services and solutions has altered the role of the salespeople from a representative of the product to the consultant for the customer by developing long-term relationships (Sheth and Sharma, 2008). The importance of the service providers having the necessary skills to integrate the customer in the service creation process is increasing as the role of the customer alters also in the service creation process, making it as a co-creator of the service (Ulaga and Loveland, 2014) and salespeople who adapt the customer oriented service approach make a greater effort to meet the customer needs. Getting to know the customer processes and culture leads to a higher customer satisfaction and higher levels of performance (Sharma, 2007; Ulaga and Loveland, 2014).
Salespeople in manufacturing firms normally have training in cost analysis and are educated to highlight the practical and technical features of goods (Neu and Brown, 2008) but there are significant differences from selling services to selling goods. Selling services is a process of understanding the customer needs and creating a customer solution (Ulaga and Loveland, 2014) and requires salespeople to have different skills to sell services, as compared with selling goods. It is fundamental to have salespeople prepared to comprehend and meet customer needs and so it is necessary for the salespeople to have training in communication, problem solving, flexibility and adaptability (Sharma, 2007; Ulaga and Loveland, 2014). This training will provide salespeople adequate listening abilities and the capacity to customize solutions based on customer needs (Ulaga and Loveland, 2014). With the right training, salespeople can obtain the tools to successfully create service solutions (Gebauer et al. 2005). Furthermore, Gebauer et al (2005) highlight that it is only possible to have an effective fit of the service approach if salespeople have the correct mindset to integrate the training into the service provision.
Likewise, the traditional reward model for salespeople may not be suitable as it is typically based on the amount of sales. The incentive for selling some services may be less than for selling products because they often have a lower price and this can lead to lower commissions for the salespeople (Zeithaml et al., 2014). The literature recommends that the compensation should be based on customer satisfaction and profit and sales growth. The financial compensation is an enticement and a significant driver in the development of a service-oriented business (Sharma, 2007; Sheth and Sharma, 2008).
It is crucial to have salespeople with an extraordinary level of knowledge and experience to acquire a complete understanding of the customer operating processes, leading to the creation of optimized solutions (Ulaga and Eggert, 2006). Customers commonly have difficulties to express their needs in an effective manner and value the manufacturer aptitude to ask the proper questions (Kapil et al., 2007). The manufacturing firm know-how is then a significant value-adding feature in the long-term buyer-seller relationship and a close interaction in a long-term relationship can reduce the customer price sensitivity (Kapil et al. 2007). By developing interpersonal connections between customer and provider through frequent communications, the particular needs of the customers can be understood and problem solving is consequently enhanced (Ulaga and Eggert 2006; Kapil et al. 2007). Moreover, purchasing people on customer side are often too low in the organization’s hierarchy to sign contracts for more costly and complex services, especially when integrated with products. This entails supplier salespeople to have greater investigative skills to identify and connect with the key decision makers. The manufacturing firms should, as well, to develop professional consultative selling capabilities as the provider needs to learn more about the customer business and priorities and the salespeople must go from transactional to relationship based selling, where customers can view them as trusted advisors. Moreover, people in service delivery positions should be able to listen carefully, learn and respond quickly, anticipate customer needs and engender support across their own companies. These attributes will contribute to a greater customer satisfaction and loyalty (Zeithaml et al., 2014).
2.1.6 Pricing of Services
The pricing of services is as well a recurrent issue for numerous manufacturing companies since there is uncertainty about when transitioning from offering a customer services free of charge to charge for them. Though some firms decide to offer costly services for free as a mean to build loyalty, studies demonstrate that free services do not necessarily have an increasing effect on loyalty. Free services that are not valuable to customers have no purpose and are unnecessarily using resources that could be applied for creating revenue generating services (Witell and Löfgren, 2013).
Servitization requires changes in the manufacturers’ traditional organization but the revenue models should be rethought and the way product and service offerings are priced should be modified (Barquet et al. 2013). The pricing definition has a significant influence on revenue streams and profitability and an inadequate pricing could explain why several companies find difficult to achieve the financial potential of an extended service business (Gebauer et al., 2005). The pricing is also related with the difficulty of developing value propositions. Goods oriented companies are experienced at pricing tangibles but not at pricing intangible services and solutions. The pricing of services has to fit customer perceptions of value and set a figure that will encourage customers to use the service or solution (Zeithaml et al., 2014).
Traditionally, the pricing is distinguished between cost, competition and value based. In the cost based pricing, the manufacturer defines the price taking the cost plus a chosen profit margin. In the competition based pricing, the market pressures influence the price. In the value based pricing, prices are proportionate to the value created for customers (Hinterhuber, 2004; Nagle and Hogan 2006). The cost based pricing dominates the manufacturing industries but it is seen as not effective in a service oriented business (Kindström et al., 2012). The firms remunerations should relate to the value impacts on the customers’ business rather than calculated based on the service cost (Oliva and Kallenberg 2003; Gebauer and Friedli 2005). So, the manufacturing firms moving towards a more service oriented business model should gradually shift from cost to value based pricing strategies (Rapaccini, 2015). The value-based pricing strategy is considered to be the most advantageous pricing strategy for services. This fits especially on the category of services that are more complex, as consultancy services (Johansson et al., 2003). Two essential understandings on this pricing strategy are to recognize the customer’s willingness to pay and to recognize how customers’ value perception of the service can be improved (Kotler et al., 2009). In general, pricing of services might be perceived as unfair by customers as services are less defined than the tangible goods and the sales of the services can be compromised. Due so, it is important to have in consideration, when choosing the pricing strategy, that this is communicated to the customers as rational and righteous and that the value of the service and its relation to the price has to be properly communicated to the customers.
Regarding the way the price is presented to the customers, the services can be bundled or unbundled: respectively, either there is a global price for products and services or the service is priced individually. Basic services, as the after sales services, are often sold separately from the product but there are cases where product-centric firms bundle the products and services into “all-inclusive offer” to avoid the pricing question (Ulaga and Reinartz, 2011). Oliva and Kallenberg (2003) refer that standard and unbundled services are sold to start up the service business in the first stage of servitization and, on the other hand, integrated service offerings are typical of more servitised firms. The shift from unbundled to bundled offering goes from transactional business to long term relationships with the customers.
Regarding the revenue models, Windahl et al. (2004) state that servitised companies should move “from pricing of product and service items to comprehensive contracts, based on sharing risks and rewards between the provider and the customer”. Through these agreements, the “customers require that the suppliers assume some level (or all) of the process outcome risk”, and risk transfer is a reason for customers to accept these agreements (Ulaga and Reinartz, 2011).
3 Research Methodology
This chapter introduces the overall methodology used on this study in order to secure its academic quality. It starts by addressing the research problem and questions. Furthermore, this chapter presents the methods for data collection and qualitative measures to evaluate the quality of the research results.
3.1 Research Problem and Questions
Infineon is a company inserted in the semiconductor industry and has always been an innovator, focusing on technology leadership and product excellence. This competitive strategy has suited the company in the past years but the increase of global competition, the customer expectations, the large investment in technology and the difficulty to capture the value of that investment shows that it will not be sufficient to stay competitive and remain profitable. This way, the company is forced to differentiate and add more value to their offerings to be able to stay competitive. Moreover, semiconductor industry is well known for its market instability and there are some key market features that contribute to that instability: rapid growth cycles, severe price fluctuations, rapid technical innovation and frequent capacity imbalances (Doering and Nishi, 2008). Generally, the semiconductor industry has shown a strong cyclical behavior. During times of economic prosperity, the chip industry thrives but, during economic downturns, revenues come under pressure as corporate budgets are cut back and consumers refrain on acquiring the latest gadgets. Competition is intense, with product innovation, operated by assertive research & development (R&D).
Nonetheless, manufacturing companies have always provided services, either through offerings in the aftersales market (e.g. installation, maintenance) or through customer support activities (Kowalkowski et al., 2013). In the last decade industrial manufacturing companies have found essential and beneficial to shift further towards providing services and solutions rather than just providing manufactured goods (Oliva & Kallenberg 2003; Kowalkowski et al. 2012).
Taking these challenges in consideration and the expected benefits of services, the objectives of this study, as mentioned on Chapter 1, are to understand the potential that Infineon has to develop a servitization strategy and to recognize the drivers that could lead the organization to follow that strategy and the barriers that could prevent the development and implementation of a servitization strategy. With this in mind, the following main research questions were defined:
1 - How can the organization potential to develop a servitization strategy be characterized? 2 - Why should the organization consider developing a servitization strategy?
3 - Why could the organization be prevented to develop a servitization strategy?
3.2 Research Methodology
The research methodology is a process of selection of the investigation strategy, determining the choice of the data gathering and must be suitable to the objectives previously defined for the study so as to answer the research questions. In this phase, the researcher assures that the
instruments are valid and can be trusted (Fortin, 2003). All methodological decisions are important to guarantee the reliability and quality of the research results.
3.2.1 Multiple Case Study
According to Creswell (2007), there are five approaches that can be used within the qualitative research: narrative research, phenomenology, grounded theory, ethnography and case study. Narrative research can be understood as the “text used within a context of a mode of inquiry in qualitative research, with specific focus on the stories told by individuals”. Phenomenology describes the “meaning for several individuals of their live experience of a concept or a phenomenon. It focuses on describing what all participants have in common as they experience a phenomenon”. Grounded theory intends “to move beyond description and to generate or discover a theory, an abstract analytical schema of a process”. In the ethnography “the research describes and interprets the shared and learned patterns of values, behaviors, beliefs and language of a culture-sharing group”. The case study research “involves the study of an issue explored through one or more cases within a bounded system”. This research aims to understand and analyze the characteristics of a specific reality (servitization in a semiconductor company) and, for that reason, it is considered relevant to conduct it as a case study. Yin (2014) defines a case study as “an empirical inquiry that investigates a contemporary phenomenon (the “case”) in depth and within its real-world, especially when the boundaries between phenomenon and context may not be clearly evident”. The case study handles with the technical distinctive situation in which there will be many more variables of interest than data points, relies on multiple sources of evidence, with data needing to converge in a triangulating fashion and benefits from the prior development of theoretical propositions to guide data collection and analysis. (Yin, 2014).
This study employs a multiple case study research. According to Yin (2014), the evidence of a multiple case study is frequently considered more captivating and the study is overall stronger than a single case study. The choice for multiple cases was decided based on that premise and because it is considered to be appropriate to allow checking consistency of similar results. Multiple cases allow comparisons that clarify whether an emergent finding is just distinctive to a single case or consistently replicated by several cases (Eisenhardt, 1991). Due so, multiple case studies should follow the replication logic and not a sampling logic, meaning that two or more cases must be included in the same study as the replication approach allows making comparisons and provides the possibility to draw patterns across the cases and obtain more reliability in the overall results (Yin, 2014).
The relative newness of the field of servitization and the absence of existing studies on the application of this phenomenon to the semiconductor industry were the main reasons to take this topic as main subject of the study. Within the multiple case study research, it was considered appropriate to conduct it with a qualitative approach. Qualitative research can be described as a method that studies phenomena in the environments in which they naturally occurs and uses social actors’ meanings to understand the phenomena. It addresses questions about how social experience is shaped and given meaning and produces representations of the world that make it visible (Gephart, 2004). This kind of method is inductive and descriptive, as concepts, ideas and understandings are developed from the patterns found in the data, instead of collecting data to prove theories or to check hypotheses as it is on a quantitative
research. It intends to understand individuals’ points of view without making any value judgment throughout the data collection phase (Carter and Henderson 2005).
3.2.2 Selection of Cases
On a first step, the Business Innovation Office sent a general email to people considered relevant to back up the research, informing about the context of the study and asking for their support. With this, some people have reached out and showed their availability to meet. Due so, meetings were scheduled according to their convenience. Some interviewees suggested other working colleagues to be contacted for this study and these advices were taken in consideration. Two of the interviewees were contacted by own initiative as it was considered they could be of value added. The aim was to get to know which products are offered in the Divisions, if there is any service related to those products and to get different outlooks about them. It intended also to apprehend how the different organization levels perceive services in their areas and to have a big picture about the different business units within the company, so that it would be possible to identify the most relevant cases for this study.
One of the most important sources of case study evidence is the interview (Yin, 2014). Based on the objectives defined for this study, it was decided to approach those meetings as unstructured interviews. This was considered the suitable method to obtain a general overview about products and services at Infineon and to identify all topics and main problems pertinent for this study. Minichiello et al. (1990) defined the unstructured interviews as interviews in which neither the question nor the answer categories are predetermined. Instead, they depend on social interaction between the researcher and the interviewee.
A total of 10 unstructured interviews were conducted with people from the different business units at the company (Divisions), in different positions on those areas and also people located in the different continents were the company is present (Europe, Asia and America) and took a total of 7 hours and 10 minutes. In average, each conversation lasted 43 minutes. In the beginning of each conversation, a brief introduction about the objectives of the study was presented and the anonymity and confidentiality of the data was assured. The conversations were not recorded and only notes were taking during the meetings. Furthermore, no interview guide was prepared for the unstructured interviews. Rather, during the conversation with the interviewees, questions were generated in response to their narration. It was thought that people would feel more comfortable to talk about the subject, allowing them the flexibility to go in any direction that could be considered relevant.
The sample has 10 interviewees, 8 are male and 2 are female, corresponding to 80% and 20% respectively. A list of the interviewees is shown on Table 2 – Unstructured Interviews: Interviewees List. For the people located in Munich, the meetings were done face to face at Infineon headquarters. For the people located somewhere else, the meetings were done via phone. Considering the people rights to anonymity and confidentially and that this was guaranteed to all informal interviewees, it was decided to not identify the interviewees by their names but by using an acronym.
Table 2 - Unstructured Interviews: Interviewees List
Interviewee Gender Position Location Duration
UI1 Male Vice-President Livonia, USA 01h20m
UI2 Female Department Manager Singapore, Singapore 00h18m
UI3 Male Business Developer Munich, Germany 00h19m
UI4 Male System Methodology Architect Munich, Germany 01h26m
UI5 Male Director Munich, Germany 00h50m
UI6 Male Senior Manager Application Engineer Munich, Germany 00h51m
UI7 Female Director Munich, Germany 00h28m
UI8 Male Department Manager Munich, Germany 00h36m
UI9 Male Application Engineer Munich, Germany 00h30m
UI10 Male Senior Application Engineer Munich, Germany 00h36m
Based on the information gathered from the unstructured interviews, a list of mentioned services and solutions at Infineon was elaborated. Taking in consideration the objectives and research questions defined for this study, it was decided to take a sample of two product service solutions and analyze them separately as individual case studies based on the following perspectives: a PSS with an explicit service component (the services are clearly differentiated in different levels and each level has an individual pricing) and a PSS with a inexplicit service component (the services are not clearly differentiated on the solution provided and pricing is frequently free of charge). On both cases there was a clear attempt to rethink services to create value into the goods-based offering. These two cases can help to understand if it is possible to have a services strategy within the organization and what were the main drivers and challenges faced to embrace services. The selection of the number of cases is not done on statistical grounds in multiple case studies. Instead, the topic should be approached conceptually. Multiple cases are used to add confidence to the findings (Miles and Huberman, 1994). As per Creswell (2007), it is appropriate to select unusual cases in collective case studies and employ maximum variation as a sampling strategy to represent diverse cases and to fully describe multiple perspectives about the cases.
3.2.3 Data Collection
An empirical research should begin with a solid grounding in related literature (Eisenhardt and Graebner, 2007). Therefore, this study integrates a multi-disciplinary review across the fields of servitization, service infusion, product-service systems and industrial services. With the literature review it was intended to identify issues and gaps and to strength the theoretical basis of the study even before going into the field.
The step after the literature review was the collection of information about existing services and solutions at Infineon Technologies and the gathering of data for this research took place from June 2015 to August 2015. This concerns to the unstructured interviews explained on topic 3.2.2 Selection of Cases of this chapter.
After the selection of cases was finalized, the list of people to be contacted was prepared and it was decided to use semi-structured interviews as the main source of data, supplemented with documentation analysis. The semi-structured interviews are flexible and contained an interview guide with open-ended questions, allowing the interviewee to freely express and justify his opinion. The interview guide used for the semi-structured interviews can be found
